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This week's topic in our series offering guidance on the process of setting up a company in Dubai is taxes. In this week's article, in which we cover the tax structure in the United Arab Emirates (UAE), Corporate Tax, Value Added Tax and the advantages in free zones, we aim to help you optimise your business's operations in the UAE by providing up-to-date information on e-commerce procedures, import restrictions and tax compliance. For more, you can look at the articles from previous weeks and follow the weeks to come!
Which taxes are companies subject to in the UAE?
In the UAE, companies are subject to two main taxes: Value Added Tax (VAT) and Corporate Tax (CT).
-Corporate Tax (CT): CT, which has applied since 1 June 2023, is a tax levied on companies' profits. The standard CT rate is 9%. Small businesses and start-ups with taxable income of less than 375,000 UAE dirhams (AED) benefit from a CT rate of 0%.
-Value Added Tax (VAT): VAT, which entered into force on 1 January 2018, is a tax applied to goods and services paid for by the consumer. The general VAT rate is 5%, but different rates may apply to certain goods and services.
Is there Corporate Tax in the UAE?
Yes, the UAE introduced federal-level corporate tax on 1 June 2023. The standard corporate tax rate is 9%. However, a corporate tax rate of 0% applies to businesses with taxable income of up to AED 375,000. This arrangement is intended to support small businesses and start-ups.
What is the Value Added Tax (VAT) rate in the UAE?
The VAT rate in the UAE is 5%. This rate is quite low compared with many European and Asian countries. VAT is a tax levied on the consumption of goods and services.
Is Personal Income Tax paid in the UAE?
No, individuals working in the UAE do not pay personal income tax. This enables employees to earn a higher net income and makes the UAE an attractive place for talented professionals. However, because Dubai has a Double Taxation Agreement with Türkiye, Turkish citizens who set up a company in Dubai are required to pay income tax in Türkiye.
What tax advantages does doing business in the Free Zones in the UAE offer?
Companies operating in free zones can benefit from various tax advantages:
-Corporate Tax Exemption: Companies in free zones are exempt from corporate tax for a certain period.
-Personal Income Tax Exemption: Persons working in free zones are exempt from personal income tax.
-No Local Partner Requirement: There is no requirement for a 51% local partner in order to set up a company in free zones.
-Customs Duty Exemption: Companies operating in free zones are exempt from customs duty on import and export transactions.
What tax advantages do Offshore Companies have in the UAE?
Offshore companies are generally preferred for tax planning and international trade and benefit from the following tax advantages:
-Corporate Tax and Income Tax Exemption: Offshore companies are exempt from corporate tax and personal income tax.
-Confidentiality and Security: The ownership structures of offshore companies are generally kept confidential, which provides an additional layer of security for investors.
What are the other costs of setting up a company in the UAE?
The costs of setting up a company in the UAE vary depending on the type, activities and location of the company. The costs may include the following:
License fees: License fees that must be renewed every year.
Rent: The company is required to have a physical address, so rent must be paid.
Visa fees: Foreign employees need to obtain a visa in order to be able to work in the UAE.
Local service agent fees: Where a company is established on the mainland, it may be necessary to appoint a local service agent.
What are the most common misconceptions about the tax structure among those who wish to set up a company in the UAE?
There is no tax at all in the UAE: This is incorrect. VAT, CT and certain other taxes apply in the UAE.
I do not have to pay tax in the UAE: This is also incorrect. Companies operating in the UAE and resident individuals are required to pay tax once they exceed a certain income threshold.
What are the customs procedures for companies engaged in e-commerce in the UAE?
E-commerce customs procedures in the UAE are more flexible than in other countries. E-export shipments from Türkiye to the UAE are carried out through authorised cargo companies such as PTT, DHL and UPS. By issuing an Electronic Commerce Customs Declaration (ETGB), shipments can be made smoothly.
Which products are prohibited from being imported into the UAE?
The products prohibited from being imported into the UAE are as follows:
Narcotic substances
Products imported from boycotted countries
Products of Israeli origin
Gambling tools and machines
Triple-layer fishing nets
Used, refurbished and processed tyres
Radioactive substances
Publications and materials contrary to Islamic values
Counterfeit currency
Cooked and homemade food
Pirated content
Exotic, protected and endangered animals and certain dog breeds
Firearms and explosives
Plants and seeds (except where a permit is required)
What are the tax obligations of companies engaged in e-commerce in the UAE?
Companies engaged in e-commerce in the UAE are also subject to standard tax obligations such as VAT and corporate tax. It is important that VAT is correctly calculated and paid in e-commerce transactions.
How is tax compliance ensured in the UAE?
To ensure tax compliance in the UAE:
Keep track of your tax obligations and stay informed about changes in tax laws.
Keep appropriate records in order to document your income and expenses accurately.
Seek help from tax advisers. Tax advisers can guide you in fulfilling your tax obligations and in benefiting from tax advantages.
